Monday, June 16, 2008

What's interesting is that this news follows talk by both Canadian and U.S. politicians on revising the North American Free Trade Agreement (NAFTA).

NAFTA is a treaty signed by Mexico, Canada, and the United States. The purpose of the treaty is to allow a free flow of goods and services across the borders between each country. It also provides an arbitration framework for reconciling disputes.

The theory went, drop trade restrictions and each country would get wealthier by providing their best resources in a wider marker.

And to be honest, NAFTA has been successful in several economic areas.

U.S. exports to Canada and Mexico grew from US$134.3 billion (US$46.5 billion to Mexico and US$87.8 billion to Canada) to US$250.6 billion (US$105.4 and US$145.3 billion respectively).

Mexican exports to the United States reached over US$138 billion, while Mexican exports to Canada grew from US$2.7 billion to US$8.7 billion, an increase of almost 227%.

This economic success has not been felt by every person. Especially in the United States, blue collar workers and union organizers attribute continuing loss of jobs in the manufacturing sector on free trade agreements like NAFTA.

These factions want free trade agreements stifled or amended to include increased protections for manufacturing jobs in the United States.

So, the U.S. wants a better deal that protects the U.S. manufacturing center.

Canada is probably quite happy with NAFTA - considering their ever increasing economic growth and widening gap in trade with the U.S.

Mexico's been pretty silent on the matter.

WHAT IS THE CONTROLLING INTERNATIONAL LAW?

NAFTA's own treaty controls the process of changing NAFTA.

There are two methods available:

Article 2202 of the NAFTA treaty allows for 'any modification of or addition to this Agreement. ' And that 'when so agreed, and approved in accordance with the applicable legal procedures of each Party, a modification or addition shall constitute an integral part of this Agreement.'

So for NAFTA to be changed, all of the Members of NAFTA will have to agree to change it.

Given that Canada is mostly happy with how NAFTA is functioning, such an agreement is not likely to happen.

The second method is withdrawal.

Article 2205 of NAFTA allows a country to withdraw from NAFTA six months after they give written notice to the other member countries.

So, if the U.S. truly believes the NAFTA is not in its best interest, the U.S. could pull out of NAFTA altogether.

Withdrawal may be the U.S. only method of altering NAFTA.

HOW DOES THIS AFFECT YOU?

We'll focus on the U.S. readers here.

Article 603 of NAFTA currently makes it easier for goods to enter the U.S. This includes the large volumes of oil and gas that Canada is currently extracting from its oil sands and shipping to the U.S.

The U.S. currently imports more fuel from Canada than any other single supplier. Mexico is in the top three suppliers.

The U.S. can find better means of dealing with lost manufacturing jobs (unemployment insurance, increased educational assistance) than hamstringing the economies of both the U.S. and other NAFTA members.

Note: This analysis does not look at the affect of the General Agreement on Trade and Tariffs (GATT) and the World Trade Organization (WTO) on trade between current NAFTA members.